The headline read of last week: a fragile Pakistan-brokered U.S.-Iran ceasefire held and meaningfully expanded. Thursday’s ceasefire between Israel and Lebanon renewed market optimism of a durable long-term peace agreement between the U.S. and Iran. As this week begins, markets have been reminded that decision-making on both sides of the war does not portend a straight line of progress.
Thus, today opens with yet another inflection point looming: an expiring ceasefire on April 22. The U.S. naval blockade is the hammer that will either compel a deal or spark a re-escalation of hostilities. Yesterday’s forceful military interdiction of an Iranian vessel by the U.S. blockade has reminded this morning’s opening of the asymmetric progress to the war. Underneath that U.S. blockade hammer (and its explicit threat of re-escalation) is an internal Iranian power-struggle between pragmatic diplomats and Islamic Revolutionary Guard Corps (IRGC)-aligned hardliners.
Markets that priced for an extension and a near-term deal on Friday are pulling back this morning on news of the U.S. interdiction. But the gains made last week have erased all war-driven losses, with crude benchmarks and Treasury yields responding similarly. Early market exuberance had ignored the internal Iranian power struggle, leading to a predictable retreat this morning when progress again met its next friction point over the weekend. Thus, the disconnect between market optimism and uneven negotiating reality is the defining analytical tension.
Meanwhile, political-based economic pressures are building. President Trump threatened to fire Federal Reserve Chair Jay Powell last week should he stay on as chair pro tempore after his term expires on May 15. Underlying the Administration’s position, Treasury Secretary Scott Bessent accused the Fed of being “wrong on inflation,” saying rates “should come down a lot more.” Much like the market optimism, however, the timeline for a new Fed Chair who may or may not bring policymaking change remains hypothetical so long as the Department of Justice’s (DOJ) investigation of Powell remains outstanding.
On the trade front, new Section 301 investigations are underway to restore IEEPA-equivalent tariff levels when the interim Section 122 global tariffs expire in July, with hearing beginning April 28 (forced labor) and May 5 (overcapacity). As Iran negotiations and global tariffs remain in flux, President Trump will head to Beijing for his summit with President Xi Jinping on May 14. The capstone to the U.S.-China negotiations that began in October will bring nearly all geopolitical and global trade issues to the forefront of the Trump/Xi negotiating table.
GEOPOLITICAL UPDATE
The clock is ticking on the Pakistan-brokered U.S.-Iran ceasefire, with two days remaining to extend or reach a tentative peace agreement. The terms of the ceasefire continue to be tested. Iran’s Supreme National Security Council purported that the U.S. had agreed in principle to lift all primary and secondary sanctions, withdraw combat forces from the region, and maintain Iranian control over the Strait—the latter of which runs counter to the President’s Truth Social assertions.
Vice President JD Vance said that the factions within Iran were “lying about even the fragile truths that we’ve already struck.”
The ceasefire’s fragility most acutely showed up in early disagreements over the ongoing Israeli operations in Lebanon against Iranian-backed Hezbollah. The standoff over Lebanon thus created the first live trigger for the fragile ceasefire, which the IRGC immediately pulled as it re-closed the Strait of Hormuz at the start of last week. As every action results in a reaction, President Trump responded with the creation of a U.S. naval blockade.
Naval Blockade
At the President’s direction, U.S. Central Command (CENTCOM) began implementing “a blockade of all maritime traffic entering and exiting Iranian ports” last Monday at 10:00am. To assist in the blockade, the Pentagon ordered the deployment of more than 10,000 additional troops to the Middle East. The Pentagon’s reinforcements indicate a longer duration than the two-week ceasefire window—the threat of renewed U.S. military strikes and/or ground operations is explicit. Articulating the U.S. strategy, Admiral Brad Cooper stated, “An estimated 90% of Iran’s economy is fueled by international trade by sea… U.S. forces have completely halted economic trade going into and out of Iran by sea.”
The U.S. naval blockade is the war’s next phase—continued hostilities by another name. Ethics and Public Policy Center (EPPC) Senior Fellow Henry Olsen, writing in the Washington Examiner over the weekend, contends the Administration is not simply trying to find an exit. Rather, President Trump has been using the ceasefire to build operational leverage. As Olsen argues, none of the blockade’s buildup guarantees Trump will resume attacks, but it does demonstrate that the U.S. will have substantially greater firepower should negotiations fail. According to Olsen, “this time, we should expect him to land a blow so powerful that even the Iranian regime could see the light.” Joint Chiefs Chairman General Dan Caine confirmed as much, saying that U.S. forces “remain postured and ready to resume major combat operations at literally a moment’s notice.” Sunday’s forceful interdiction and seizure proved the Pentagon’s explicit posture.
Lebanon Ceasefire
As a precursor to the next Islamabad meetings, the State Department convened the first direct high-level engagement last Tuesday between Israel and Lebanon since 1993. A joint statement expressed support for curbing Iranian influence and unlocking “significant reconstruction assistance and economic recovery for Lebanon.” Just two days later, the first tangible signs of progress were reached in the exceedingly complex multi-lateral Iranian war negotiations.
Shortly after noon last Thursday, President Trump posted to Truth Social that Israel Prime Minister Benjamin Netanyahu and Lebanon President Joseph Aoun had agreed to “a 10 Day CEASEFIRE” beginning at 5:00 p.m. that afternoon. Trump directed Secretary of State Marco Rubio, Vice President Vance, and General Caine, to “work with Israel and Lebanon to achieve a Lasting PEACE.” The President followed the post with an announcement that he would be inviting Netanyahu and Aoun to the White House for joint meetings. The presence of Caine in the talks implies that Hezbollah disarming is officially on the table.
While the prospect of definitive news out of the next Islamabad talks is unknowable, the first tangible concession—the Lebanon ceasefire—has been seemingly achieved. Given the IRGC’s selective reclosing of the Strait was first tied to Israeli operations in Lebanon, the public justification to close Hormuz has been undermined on at least one contested front.
Hormuz “Reopening”
The next domino—reopening of the Strait—seemingly fell prior to trading on Friday. Iranian Foreign Minister Abbas Araghchi declared on X that the Strait was “completely open for the remaining period of ceasefire” for all commercial vessels.
Markets jumped at the rapid developments and began pricing in the prospects of an emerging peace agreement. In addition to reopening the Strait, Trump asserted that Iranian officials had agreed to U.S. control of its highly enriched uranium (HEU). In return, Axios reported that Trump could unfreeze as much as $20 billion in frozen Iranian assets. Trump escalated the deal framing throughout Friday. In a phone interview with Bloomberg, he stated that Iran had agreed to suspend its nuclear program “indefinitely” with an “unlimited” endpoint.
The domino logic our note has tracked is now on the board: Lebanon ceasefire was the first real breakthrough; Iran’s Hormuz opening followed directly. But the last domino remained in place—the U.S. blockade. And thus, the operational reality of the Hormuz “reopening” began to reverse. Iran’s initial walk-back excluded ships linked to “hostile” countries from passage. Iranian state media then reported the government would fully close the Strait if the U.S. did not end its blockade.
Friday afternoon reporting by Iran International surfaced the key obstacle behind the reversal: dueling Iranian factions competing for authority. The IRGC moved quickly to undermine Araghchi’s decision-making, with Tasnim News Agency calling the foreign minister’s X post a “bad and incomplete tweet that created misleading ambiguity.” Iranian lawmaker Morteza Mahmoudi went so far as to threaten impeachment against Araghchi.
Behind the scenes, IRGC commander-in-chief Ahmad Vahidi has sought to curb Araghchi’s authority and push for inclusion of the Supreme National Security Council (SNSC) secretary in Iran’s negotiating delegation. The IRGC’s position is not merely linked to the blockade—regime hardliners contest all concessions, particularly surrounding its nuclear and missile programs.
The picture that emerges is not of a unified Iranian negotiating posture, but a factional contest between Araghchi’s diplomatic track and regime hardliners’ resistance to a perceived “surrender.” The IRGC has historically been responsible for military actions, not diplomacy. As the Institute for the Study of War writes this weekend, “The IRGC’s consolidation of control over Iranian decision-making indicates that the Iranian political officials currently negotiating with the United States do not have the authority to independently determine Iran’s negotiating positions.”
Before the war, national security authority rested with Supreme Leader Khamenei. With the elder Khamenei and several other top Iranian officials now dead and successor Mojtaba Khamenei absent from public, the governing structure is up for grabs. In the interim, the regime’s wartime decisions centers — SNSC, Foreign Ministry, IRGC — are operating in parallel without unified command. The IRGC veto of Araghchi’s Hormuz opening is not a policy disagreement; it is a structural consequence of the leadership vacuum. Yoruk Isik of Bosphorus Observer: “The IRGC is vetoing whatever the foreign minister is doing… they couldn’t be more clear.”
Trump’s “unlimited” nuclear suspension claim lands in this environment: Iran has confirmed none of these President’s announced terms and the faction that would most be needed to ratify such an agreement—the IRGC—is the one publicly undermining its own envoy who declared Hormuz open.
Bloomberg consolidated Friday’s picture on Saturday: the HEU disposition is now the central contested fact. Trump said he would work with Iran to recover and remove the country’s “nuclear dust.” Iran’s Foreign Ministry spokesman Esmail Baghaei rejected the idea on state television, calling HEU “as sacred to us as Iran’s soil.”
Shipping
The IRGC officially reimposed restrictions on Hormuz vessel traffic on Saturday, broadcasting to ships that the waterway was closed. The aftereffects were chaotic. Five Greek and Indian tankers made U-turns, with one supertanker reporting gunfire after being approached by IRGC gunboats.
Channel 16 radio recordings revealed the IRGC Navy forcing two Indian vessels out of the Strait under fire. One was an Indian-flagged VLCC supertanker carrying approximately 2 million barrels of Iraqi crude. The audio from the Indian captain: “You gave me clearance to pass! My name is listed as number 2 in your papers! Now you’re firing on me?! Give me a chance to turn around and go back!”
The recording documents three things simultaneously: Iran had issued advance clearances to specific vessels; IRGC commanders purposefully overrode those clearances; and the re-closure was enforced via live fire against vessels that had been previously authorized to transit.
In response to the IRGC attack on its two tankers, New Delhi registered its “deep concern” with Iran’s ambassador and demanded that Tehran resume facilitating India-bound ships across the Strait. India’s formal diplomatic protest signals that the IRGC’s strong-arm tactics are generating blowback from precisely the countries whose continued oil purchases provide Tehran with its economic lifeline.
U.S. War Calculus
As the Iranian Hormuz reversal played out, the President convened a White House Situation Room meeting early Saturday. Attendees included Vice President Vance, Rubio, Secretary of War Pete Hegseth, Bessent, White House Chief of Staff Susie Wiles, Special Envoy Steve Witkoff, CIA Director John Ratcliffe, and Caine—a fulsome showing of the Cabinet’s national security and economic leaders.
Coming out of the meeting, a senior U.S. official told Axios that absent a breakthrough soon, the war could resume in the coming days. Trump later told reporters in the Oval Office that he could resume strikes if the ceasefire expires next week: “Maybe I won’t extend it, so you have a blockade, and unfortunately we have to start dropping bombs again.”
The U.S. posture further hardened late Saturday, as the Wall Street Journal reported that the Pentagon was preparing plans to board Iran-linked oil tankers and seize commercial ships in international waters. This meaningfully expands the U.S. naval crackdown and effects far more countries than just Iran. According to General Caine, “The U.S. will actively pursue any Iranian-flagged vessel or any vessel attempting to provide material support to Iran. This includes dark fleet vessels carrying Iranian oil.”
Late Sunday, U.S. forces operating in the Arabian Sea did just that, intercepting a sanctioned Iranian-flagged vessel (“Touska”) enroute to Bandar Abbas. American forces issued multiple warnings that went unheeded over a six-hour period, resulting in the U.S. firing several rounds from the guided-missile destroyer USS Spruance into the Iranian vessel’s engine room. Marines from the 31st MEU later boarded Touska, taking the ship into U.S. custody.
The Administration’s objective is clear: maximize economic pressure sufficient to force Iran to reopen the Strait and make nuclear concessions. White House spokeswoman Anna Kelly said Trump was “optimistic” that the new measures would lead to a peace deal.
Oil Shock
WTI and Brent have recently been hovering below $100/barrel, poised to go in either direction pending definitive news out of Islamabad. Global crude had thus found its war ambiguity price equilibrium prior to Thursday’s Lebanon ceasefire.
Then came Friday’s opening. Oil prices collapsed immediately: WTI plunged approximately 12% to $83/barrel; Brent fell more than 11% to around $88/barrel. Heating oil futures, a proxy for jet fuel, fell approximately 13% and RBOB gasoline futures fell approximately 7%.
On the week, Brent settled near $90 per barrel and WTI at roughly $84, both five-week lows. European benchmark gas prices fell as much as 10%, settling near €39 per megawatt-hour. Physical oil also moved with dated Brent, the world’s benchmark physical price, falling below $100 for the first time since March 11. Brent is now down roughly 25% from its Q1 peak of $118. Heading into the weekend, the market had priced resolution but the negotiation had not yet produced it. Following yesterday’s interdiction, markets are now edging back towards the war’s crude pricing equilibrium.
Regardless, the 800 vessels still stranded in the Persian Gulf will not be moving until the legal and operational status of transit is resolved and the U.S. blockade is lifted or modified. Speaking with Bloomberg, one shipowner framed the calculus precisely: “Would you be the first penguin off the ice floe to test the water?” The next round of Islamabad talks are not just about a nuclear deal; they are about whether ships can actually move.
The downstream consequences of destabilized crude are producing corporate casualties with jet fuel prices bleeding into global travel. Spirit Airlines, which filed for Chapter 11 last August and had structured its entire bankruptcy exit plan around jet fuel averaging $2.24/gallon, is now facing fuel costs of approximately $4.24. JPMorgan estimates that Spirit’s 2026 operating margin will deteriorate to approximately negative 20% from the 0.5% margin embedded in its reorganization plan. This adds approximately $360 million in incremental costs against a cash balance of roughly $337 million. Creditors are now exploring liquidation.
The airline industry is a concrete illustration of the war’s indirect economic transmission: elevated crude flows into jet fuel, which flows into carrier cost structures, which flows into route and capacity decisions that consumers will feel regardless of whether the ceasefire holds.
A separate shipping development is seeking to provide stability in the interim. The previously announced U.S. International Development Finance Corporation (DFC) maritime war risk insurance program is nearly operational. DFC head of investments Conor Coleman confirmed the program is in daily contact with the Navy on security protocols and is “ready to go.” The program will insure losses up to $40 billion for vessels willing to transit the Strait. Chubb will administer the reinsurance program, with Berkshire Hathaway, Liberty Mutual, and other major carriers participating. First announced in March, the program’s launch does not resolve the physical security question keeping ship captains from transiting.
Islamabad 2.0
According to a White House official, a second round of U.S.-Iran negotiations are planned for tomorrow, with Vice President Vance, Steve Witkoff, and Jared Kushner scheduled to depart for Islamabad later tonight. Iranian state TV, however, reports that its negotiating delegation has no plans to participate in Tuesday’s talks and sees no clear prospect for “productive” negotiations.
Pakistani Army Chief Asim Munir, who has been historically close to the IRGC leadership, continues to serve as mediator. Trump spoke with Munir and Iranian officials by phone at least once and Iran’s SNSC confirmed that the U.S. had presented it with new proposals that are now being reviewed.
According to a source familiar with the deliberations, the renewed Hormuz crisis erupted specifically after the parties had made progress narrowing gaps on uranium enrichment and existing stockpiles. Heading into the April 22 deadline, mediators are still working on the three primary negotiating workflows: nuclear program window, status of Hormuz, and compensation/reconstruction.
Gulf Arab and European officials put a timeline at odds with markets’ imminent deal pricing. According to Bloomberg, outside officials believe a comprehensive deal will take approximately six months to finalize, not days or weeks, and that a global food crisis may soon develop.
Iran’s counterproposal in the first round of Islamabad talks mirrored its position during the pre-war Geneva negotiations in February. The White House rejected the counter then and believes it to now be moot—Iran’s military capacities are near fully degraded and its economic situation is on the brink of collapse.
To wit, the WSJ reports that Iran’s central bank warned President Masoud Pezeshkian in recent days that rebuilding the country’s war-damaged economy could take more than a decade. Meanwhile, the rial is trading near 1.6 million per dollar with inflation running close to 50%. The now-realized scale of U.S./Israeli destruction to Iran’s industrial production will only push those numbers higher. In the last year, the currency lost nearly half its value and the UN Development Programme estimates the war could contract Iran’s economy by 8.8% to 10.4%.
Ergo, the Administration believes the negotiating terms are fundamentally different today than they were two months ago. Until Iranian factions coalesce around this new reality and adjust their negotiating terms, a lasting peace is improbable, despite the market’s optimism. The 15-to-17-year gap between the U.S. and Iranian positions is the key signal that must be closed. Vice President Vance separately said the talks stalled because President Trump is holding out for a “grand bargain,” confirming the Administration’s posture is maximal.
Congressional Dynamic
The House narrowly failed last Thursday to pass a war powers resolution reining in the Iran campaign, voting 213-214 against the measure. Only one Republican, Rep. Thomas Massie (R-KY), joined Democrats in support. During the prior war powers vote in March, four Democrats defected and the resolution failed 212-219; this time only Rep. Jared Golden (D-ME) broke from his caucus. Republicans also closed ranks: Rep. Warren Davidson (R-OH), who voted yes in March, voted present on Thursday.
The House vote came one day after the Senate voted down its own Iran war powers resolution for the fourth consecutive time. Unlike the House, Senate margins have not moved across its four votes. The Democrats’ procedural drumbeat is designed less to win than to force vulnerable Republicans onto the record as the Administration’s war supplemental request approaches. The vote dynamics of the war powers resolutions are a signal that the Republican majority will find it hard to find the votes to pass a supplemental on its slim party-line math.
A separate Republican signal emerged from Rep. Brian Fitzpatrick (R-PA) last week, who is pushing legislation to end the military campaign within 60 days. Fitzpatrick is not a war opponent, but an institutionalist seeking an exit strategy and an assertion of Article I. His move reflects the growing GOP desire for a clear off-ramp even among Members unwilling to use the War Powers Act to constrain the President. If Fitzpatrick can build a coalition, his move becomes the most credible vehicle for congressional exit-strategy pressure and a congressional bargaining chip in return for war supplemental support.
ECONOMIC OUTLOOK
U.S. stocks opened at new all-time highs at the Friday bell, with the S&P 500 rising 0.6% and Nasdaq up 1%. Equities completed one of their sharpest war-discount erasures on record. The S&P 500 has now made up seven straight weeks of war-driven losses in ten sessions. The Nasdaq logged its 10th consecutive gain, its longest winning streak since 2021, rising approximately 14% from its March lows, with the Nasdaq 100 gaining 11.7% over the window driven by continued AI-fueled tech momentum. Trading today will likely erase some—but not all—of those gains, with the greater market moment coming tomorrow and the question of the Islamabad talks reconvening hanging in the balance.
Meanwhile, the March import price index released last Wednesday showed the first data to formally capture the war’s impact on import costs. Import prices rose 0.8% month-over-month and 2.1% year-over-year, up from 1.3% annual in February. The 2.1% annual advance is the strongest since October 2022. Higher prices for nonfuel industrial supplies, capital goods, and consumer goods drove the increase alongside elevated fuel imports. March PCE headline is estimated at approximately 3.5%, core at 3.2%. Together, the data confirms that the war’s cost is now measurable in the import price chain, even as oil retreats.
Treasury Secretary Bessent offered the Administration’s counterview at a WSJ event last Tuesday: “I do think that the growth could easily exceed three, three-and-a-half percent this year, still.” Bessent explicitly told business leaders to plan capital expenditures around the Administration’s estimates.
Bessent also weighed in on the Fed, accusing it of being wrong on inflation and continuing the Administration’s pressure campaign to cut rates: “I understand if they want to wait till the data is clearer, but that will mean that interest rates should come down a lot more.”
The Fed’s policymaking outlook and its ongoing Boards realignment is the most concentrated point in the economic outlook. Trump, when asked last week by Fox Business about Powell staying on as chair pro tempore after his term expires May 15, responded: “Well then, I’ll have to fire him, OK?” Powell holds a Fed board seat that doesn’t expire until 2028, meaning removal of him as Chair would not automatically result in Powell departing the central bank.
The legal picture is unfavorable to the Administration on this questions. The WSJ’s reporting illuminates why it is structurally more complicated than a standard personnel dispute. At the center is a distinction that has never been definitively adjudicated—whether the “for cause” removal protection under the Federal Reserve Act covers Powell’s role as a Board governor or whether a separate analysis applies to his designation as Chair. Congress created the distinct four-year Chair appointment in 1977 without explicitly writing in “for cause” language.
The deeper constitutional question is whether the 1935 Supreme Court precedent in Humphrey’s Executor v. United States, which bars removal of independent agency officials without cause, holds as applied to the Fed. Trump has already fired commissioners at the FTC and NLRB and both cases are currently before the Supreme Court on this question. If the Court overturns Humphrey’s in that context, the removal protection surrounding Fed governors could weaken.
Meanwhile, Fed Governor Christopher Waller delivered the last Fed communication before the April 28–29 FOMC meetings, framing the rate path around two explicit scenarios. In Waller’s first scenario, Hormuz reopens and energy markets return toward pre-conflict conditions. This would allow the Fed to look past the energy-driven inflation spike and remain open to cuts later in 2026.
In the second scenario, which Waller described as “very possible,” the Strait stays closed, energy prices remain elevated, and inflation becomes more broadly embedded, making cuts “much harder to sustain.” Waller flagged the risk that back-to-back inflationary episodes (tariffs, energy) could prove harder to contain than either in isolation, drawing a parallel to COVID.
With the Hormuz opening declared Friday and oil falling sharply, Waller’s first scenario materially improved in the eyes of investors with the market now pricing an increased probability of Fed cuts by year-end. The April 28–29 meetings are the next policy checkpoint. New York Fed President Williams said Friday he foresees overall inflation going “well above” 3% for a few months, reinforcing the hold posture regardless of the Hormuz developments.
The short-lived reopening of Hormuz on Friday triggered a Treasury rally. Yields fell to their lowest levels in a month, led by a 10-basis-point drop in the five-year to 3.82%. European bond yields declined in parallel and stocks rallied globally. The rate-cut repricing in a single session is the sharpest since the original ceasefire announcement.
The structural labor market picture remains cautious beneath the equity rally. Labor force participation fell to 61.9% in March, its lowest level since 1977 outside the pandemic, driven by demographic aging and the Administration’s immigration crackdown. The WSJ’s Matt Grossman reported that economic forecasters have missed all three jobs projections so far in 2026. UBS economist Jonathan Pingle, with more than 20 years tracking monthly labor data, agreed: “I don’t think forecasting the headline labor market numbers has been this challenging at any point of my career.” The April read, due May 8, is the first genuine post-war labor market print.
Meanwhile, Bloomberg Opinion’s Kathryn Anne Edwards argued the more accurate historical parallel to the current economy is the early 2000s, not the 1970s. The 2000s featured a jobless recovery, weak participation, and an oil shock absorbed without a wage-price spiral because workers lacked the bargaining power to transmit energy costs into wages. The 1970s comparison, which Powell pushed back on at the March FOMC, requires double-digit unemployment and wage-price spiral dynamics that are absent in the current environment.
One demand-side offset likely helping is OBBBA-driven refunds. Following Tax Day, Treasury reported that more than 53 million filers had claimed at least one of Trump’s new tax cuts this filing season. The average refund is over $3,400, an 11% increase over last season, and the average tax cut for eligible filers is over $800. Refund season peaked in March-April precisely when gas prices were at their war-elevated highs, potentially cushioning some of the consumer confidence deterioration. Average hourly earnings running at 3.5% YoY, the lowest since May 2021, means the tax cut is delivering purchasing power that wage growth is not.
Bloomberg’s Trumponomics podcast last week highlighted a counterintuitive structural benefit of Trump’s tariffs and the Iran war: U.S. manufacturing reshoring. Elevated import costs and disrupted global supply chains simultaneously make domestic production more economically competitive. This is the affirmative case for the “2000s not 1970s” frame: the current shock arrives alongside a deliberate industrial policy push that could convert supply chain stress into domestic capacity investment. The caveat, per Goldman Sachs: U.S. production costs run nearly 50% above the top three exporting countries for most goods. Tariff uncertainty makes large fixed-cost investments risky until the reciprocal trade regime settles.
An economic tail risk, on the other hand, was surfaced by former Treasury Secretary Hank Paulson in a Bloomberg Television interview last week. According to Paulson, the $31 trillion Treasury market is in desperate need of an emergency contingency plan for a potential collapse in demand. He drew an explicit distinction from the 2008 financial crisis during which the government had fiscal firepower to step in as a backstop. In a U.S. public debt crisis, the dynamic inverts: “you’re trying to issue Treasuries and the Fed is the only buyer and the prices of the Treasuries are going down and interest rates are up. That’s a dangerous thing.”
The IMF’s outlook tracks closer to the Paulson and Waller warnings. Under its most severe scenario involving sustained Hormuz disruptions extending into next year, the IMF projects global growth falling to 2% and inflation rising to 6%. “The downside risks are tremendous,” IMF chief economist Gourinchas said. Notably, Bessent’s remarks at the IMF meetings made no mention of the Iran war or its economic impact, an omission that underscores the Administration’s perspective that the conflict is a look-through event.
TRADE UPDATE
As over 56,000 importers prepare for the Customs and Border Protection (CBP) tariff refund portal to launch on April 20, CBP confirmed that companies must now opt-in to the electronic refund system to claim CAPE portal relief, noting that paper requests will not be accepted. DOJ separately filed in the IEEPA de minimis case arguing the Supreme Court’s recent decision had no bearing on the Administration’s IEEPA authority, a defensive move that anticipates continued legal challenges.
This week, USTR Ambassador Jamieson Greer will testify before the House Ways and Means Committee (Wednesday) and the Senate Finance Committee (Thursday), potentially shedding light on refunds, ongoing 301 investigations, and the USMCA Joint Review.
Section 301
The comment period now closed, the two new Section 301 investigations (overcapacity and forced labor) continue to progress apace as the temporary Section 122 tariffs expire on July 24. The overcapacity docket received 812 comments and the forced labor docket received 456. Submitters included industry associations and foreign governments, including Cambodia, Indonesia, Japan, and Singapore. This is an early indication of which countries expect to be material 301 targets. The next inflection will be the start of hearings, with forced labor commencing April 28 and overcapacity starting on May 5.
Secretary Bessent confirmed this week that Section 301 investigations are meant to restore tariff levels to their pre-IEEPA-ruling equivalent. USTR Ambassador Greer’s previous threat to open a Section 301 investigation in response to foreign digital services taxes (DSTs) adds complexity to the reciprocal math. Any new 301 investigation on DSTs would add a significant transatlantic front at the moment the Administration is seeking to finalize numerous reciprocal agreements and provide global tariff certainty.
USMCA
With Prime Minister Mark Carney ascendant on the world stage as the voice of the previous trade world order, he also now enjoys a majority domestic mandate. While these help inform the Canadian position on USMCA, they are both a false sense of leverage.
Canada’s Trade Minister Dominic LeBlanc articulated Ottawa’s posture, saying Canada will not accept “one-off” sectoral deals with the U.S. Instead, any progress must come as part of a “larger agreement” that eases tariff pressure and provides greater certainty for USMCA. LeBlanc’s insistence of a comprehensive framework gives Ottawa negotiating coherence but will be met with strong American resistance buoyed by the argument that its trading relationship south of the border is far more impactful than that to the north. The Trump Administration’s continued close ties to the Sheinbaum Administration reaffirm that position and continue to leave the Canadian negotiations in abeyance.
A countervailing data point for the Trump Administration’s USMCA strategy, however, is Canada’s fiscal position, the strongest in the G-7 according to the IMF. Western Hemisphere Department director Nigel Chalk: “Across the Group of Seven, Canada’s probably in the strongest position fiscally.” By some measures Canada carries net debt levels well below the near or above 100% of GDP that characterizes most G-7 peers, a dynamic economists describe as the “cleanest dirty shirt” in the developed world. Its balance sheet is both a genuine strength and a double-edged negotiating dynamic: it provides the Carney government space to absorb a prolonged USMCA standoff without fiscal panic. But it also removes the economic urgency that might otherwise push Ottawa toward the Administration’s preferred one-off deal structure.
The Department of Commerce is separately weighing a roughly 10% reduction in the combined antidumping and countervailing duties on Canadian softwood lumber, the first concrete tariff relief signal on a major Canadian goods category.
On the Mexico track, USTR Greer will travel to Mexico City today for USMCA talks covering steel, aluminum, autos, agriculture, rules of origin, and the China transshipment question. A Mexican technical delegation led by Deputy Economy Minister Luis Rosendo Gutiérrez and Agriculture Minister Julio Berdegué completed a round of Washington talks last week alongside Mexican business leaders. Bessent met separately with Finance Secretary Edgar Amador Zamora on critical minerals. The U.S. also launched another USMCA Rapid Response Labor Mechanism dispute with Mexico, a Biden-era tool the Trump Administration has retained and continued to use as a parallel pressure track on labor compliance.
Donroe Doctrine
Argentina. President Javier Milei is still facing a hard-currency shortage according to Bloomberg that must be resolved before midterm elections next year. Despite the IMF program and the U.S. Treasury backstop, Argentina’s dollar reserve position remains fragile. The dollar shortage is the variable that determines whether Milei’s reform program survives the 2026 electoral cycle. For the Donroe Doctrine, Argentina has been a model partner: Milei’s pro-U.S., anti-left economic realignment is the Western Hemisphere template the Administration is trying to replicate. A peso crisis ahead of midterms would be a damaging data point against that template.
Brazil. The government of Luiz Inácio Lula da Silva remains the largest holdout towards widespread Latin adoption of the Donroe Doctrine. President Lula participated in a bilateral summit last week with Spanish Prime Minister Sánchez, signing 15 agreements covering critical minerals, telecommunications, and artificial intelligence. Lula’s continued counter-positioning and alignment with one of President Trump’s main European detractors (“reactionary wave”), is an overt message against the Donroe Doctrine.
Cuba. The WSJ reported this week on the back-channel structure of U.S.-Cuba talks, revealing how the Administration is working around the formal Havana government. Secretary Rubio has been dealing through Raúl Castro’s inner circle rather than through nominal president Díaz-Canel. The primary channel runs through Raúl Guillermo Rodríguez Castro, Raúl Castro’s grandson and former chief of his personal security detail. Known as “El Cangrejo” (The Crab), he holds no official government position but is widely regarded as Raúl’s proxy inside the state apparatus. Díaz-Canel publicly confirmed Raúl is guiding the dialogue, describing him as one of those who “has guided how we should conduct this dialogue process.” Indeed, the channel’s structure — bypassing the formal government and routing through Raúl’s family network — reflects the Administration’s view that Díaz-Canel is a transitional figure, not a durable interlocutor.
But impediments remain. Rodríguez Castro last week attempted to bypass Rubio entirely, tapping a wealthy Havana entrepreneur to personally deliver a letter to the White House outside regular diplomatic channels. The letter, carrying an official Cuban seal, proposed economic and investment agreements and sanctions relief, and warned that the regime was prepared for a military incursion. The episode illuminates Havana’s frustration with Rubio’s historic hardline posture. Whatever channel does exist, however, it will continue to run through Rubio.
Venezuela. Farther south, Chargé d’Affaires Laura Dogu confirmed her temporary assignment in Caracas is ending and that John Barrett, current chargé in Guatemala, will replace her imminently. Dogu is returning to advise General Dan Caine as the war with Iran continues. The transition reflects a handoff from the opening-chapter diplomatic phase to routine operational posture.
Administration efforts are now fully focused on maximizing Venezuelan resources, with the American Energy Dominance Council taking center stage. Part and parcel of the Donroe Doctrine, the Administration views a geographically and energy independent Western Hemisphere as a global structural advantage that it seeks to make a reality. The security stability of the Western Hemisphere and friendly waterways of the Gulf of America and Panama Canal, allow a U.S.-Venezuelan energy superpower to both sufficiently supply the Hemisphere, as well as export to Asia, an end-around future African, Chinese, Middle Eastern, and/or Russian-induced chokepoints.
A new legal filing this week provides an additional signal of the Donroe Doctrine’s Venezuela track. California attorney Jihad Smaili registered as a foreign agent for acting President Delcy Rodríguez on April 11, 10 days after Treasury removed sanctions against her. Smaili’s original registration included political responsibilities covering “day-to-day advice and counsel on matters involving the Department of State and the President of the United States.” A subsequent amendment struck those duties and limited Smaili’s role to legal representation for the Venezuelan government in U.S. courts. This is Rodríguez’s first time as a listed foreign principal and shows her preparing for a longer-term role in the presidential office. So long as the Trump Administration views her government as stable and capable of facilitating mutual economic benefit, the Venezuela normalization track will continue to progress.
China
As both sides prepare for the May summit, the U.S/China relationship continues to swing between provocations and overtures. On the former side, the U.S. warned two Chinese banks last week of being at risk of secondary sanctions for facilitating purchases of Iranian oil. The move by Treasury reinforces and expands the reach of the U.S. naval blockade. Numerous oil tankers loaded with Iranian crude are on the water outside of the Strait of Hormuz, thus not directly affected by the U.S. blockade. Leveraging the financial system, the U.S. can further squeeze Iran’s revenue while gaining leverage against a PRC economy reliant on Iranian crude exports.
On the overture side, President Trump posted that “China is very happy” with U.S. efforts to reopen the Strait. Following Trump’s threatened 50% tariff on any country shown to have supplied arms to Iran, the President claimed that China had “agreed not to send weapons to Iran.” China’s Foreign Ministry, however, called reports of military support “purely fabricated” and warned that “China will respond with countermeasures.”
Not to be outdone with the provocations, Beijing separately published 20 regulations targeting those who assert “unjustified extraterritorial jurisdiction” over Chinese entities. According to the new regulations, offenders will be added to a “malicious entity list,” the consequence of which includes entry bans, expulsion, and asset seizures. These regulations are the legal mirror image of U.S. secondary sanctions and create infrastructure for Beijing to retaliate against enforcement actions related to the documented Chinese shadow fleet oil trade with sanctioned Iran. China’s moves, however, continue to be reactionary rather than a first-mover strategy.
Chinese exports to the U.S. fell more than 26% year-over-year in March as companies shift production to Southeast Asia and India. Bloomberg’s “Big Take” documented last week that China’s tightening technology export controls are aimed at blocking India’s battery manufacturing ambitions. Reliance Industries sent executives to China late last year to source $1.1 billion in equipment for India’s battery cell manufacturing plans. Under the new CCP export controls, the transfer has since been blocked and Reliance’s manufacturing plans are now on hold. This playbook is to be expected as a tool the CCP will use against countries attempting to build alternative supply chains, particularly those linked to U.S.-backed programs.
While China continues to dominate multiple supply chains, their export-driven influence erosion is real. It spans decreased infrastructure control in the Western Hemisphere (e.g., Panama Canal) to offshored production to southeast Asia. Bessent further sharpened the China trade framing at the IIF Spring Meetings sidelines event, calling the “slow-motion buildup of global imbalances” the biggest risk and stating flatly that “the world cannot take a China with a trillion-dollar trade surplus.” The statement is a direct pre-summit articulation of the U.S. structural demand—fundamental Chinese rebalancing away from export reliance. The U.S. will no longer accept surplus accumulation as permanent with the discussion likely to be kicked into Greer’s desired joint “Board of Trade.”
While that may very well be the key U.S. demand, the Wall Street Journal reports a more nuanced approach by President Trump following the October 2025 Busan summit (“Busan freeze”). Rejecting a hardline approach, Trump has muted tariff enforcement against the PRC, as well as export controls and confrontational rhetoric. The pivot was catalyzed by Beijing’s successful exposure of U.S. rare earth vulnerabilities, highlighted by the U.S. tech sector which retains outsized influence within the Administration. The risk is that Beijing reads the freeze as a structural capitulation rather than tactical patience and reduces its incentive to make concessions in May.
Case in point, Beijing continues to elevate its statements. President Xi broke a near seven-week silence on the Iran war last Tuesday, publicly warning that the world order is “crumbling into disarray” and pledging a “constructive role” in the Middle East. Beijing’s Foreign Ministry went further, calling the U.S. naval blockade “dangerous and irresponsible.”
Xi’s comments were made during an unusually busy week of diplomacy, holding at least five bilateral meetings in Beijing, his quickest tempo since July 2024. The week showcased world simultaneously negotiating reciprocal agreements with the U.S. while seeking to hedge their best with Xi. Beijing is hoping to deepen the Western fault lines by appealing to previous trade narratives, positioning itself as the new stable pole of the international order.
The reality is that the U.S. blockade has begun choking China’s access to crude. The risk of a confrontation between Chinese-aligned ships and American Navy vessels prior to the summit is low, but not zero. Bloomberg Economics’ Jennifer Welch identifies the risk as economic-driven rather than military-related. Forced to deal with higher oil costs at home, the CCP may be prone to strike “back with its own sanctions.” China could also retaliate through soybean purchase restrictions. Former Chinese diplomat Wang Yiwei framed the Chinese read flatly: “The U.S. is passing the bucks onto China as it is incapable of reopening the Strait of Hormuz.” The framing that Hormuz is an American failure is the posture Beijing is likely to bring to the summit table.
While the Administration’s posture is nuanced heading into the summit, the congressional stance is not. This week, the House Select Committee on China continued its drumbeat with a hearing focused on Chinese tech theft. According to Chairman John Moolenaar (R-MI), China is willing to “steal what they cannot” buy and Congress must “pass legislation that will stop China’s multiprong effort to legally and illegally acquire America’s tech stack to use it against us.”
Across the Capitol, the Senate Judiciary Committee will hold its own hearing on Chinese theft this Wednesday, entitled “Stealth Stealing: China’s Ongoing Theft of U.S. Innovation.” In short, Congress retains bipartisan and bicameral consensus on China IP enforcement and the negotiating table in May will center around AI, with Taiwan acting as the existential piece of the puzzle.
Russia
As Iran bleeds into the China summit so too does it affect the somewhat dormant peace negotiations between Russia and Ukraine. The Iranian war’s quiet monetary beneficiary has been Russia, but Ukraine has gained global influence beyond its European sympathizers, playing a vital role in advising the Middle East on the asymmetries of drone warfare.
Meanwhile, both the U.S. and Russia seemingly lost leverage in Hungary last weekend with Viktor Orbán conceding defeat in the April 12 parliamentary elections. This ends 16 years of power for Orbán and elevates Péter Magyar’s Tisza party to a supermajority: 138 of 199 seats on 53.6% of the vote, with Orbán’s Fidesz reduced to 55 seats. Turnout was nearly 80%. Magyar said his victory had “liberated Hungary” while EU Commission President Ursula von der Leyen claimed “Hungary has chosen Europe.”
The result directly implicates the bilateral package VP Vance secured in Budapest weeks ago which were structured to anchor Orbán’s domestic position. They did not. Magyar is pro-EU, pro-NATO, and has pledged “pragmatic relations” with Russia, the opposite of Orbán’s posture. The Trump Administration’s most significant European bilateral investment now faces an uncertain future under an incoming government that has turned against MAGA politics.
NATO
The Iran war has opened a new fracture line in the U.S.-NATO relationship following Trump’s public break with Italian Prime Minister Giorgia Meloni last week. Orbán and Meloni have been the Administration’s most reliable European interlocutors—the former now out of the picture and the latter sidelined by Trump.
Meloni, the only EU leader invited to Trump’s second inauguration, called the President’s recent criticism of Pope Leo XIV “unacceptable.” Trump fired back, saying “I thought she had courage, but I was wrong.” He described Meloni as “not the same person” and Italy as “not the same country,” and said she was “unacceptable” for not supporting the Iran war. Italian Foreign Minister Tajani responded that Western unity “is built on mutual loyalty, respect, and honesty.”
Thus, the Trump EU/NATO fissure appears to be accelerating, with only Secretary General Mark Rutte still on good terms with the President. How long Rutte can manage that relationship will continue to be tested. Trump this week called NATO a “paper tiger” and criticized Europe for not being “willing to fight for the Hormuz Strait, which is where they get their energy.” Trump’s comments brings Article 5 credibility into question, the bedrock of the alliance.
Miscellaneous
- European Union: The U.S. and EU are reported to be close to a critical minerals agreement, following Secretary Bessent’s meeting with EU Commissioner for Economy and Productivity Valdis Dombrovskis and the Finance Ministers of France and Italy last week.
- India: An Indian trade negotiating team will visit Washington this week for renewed talks, hoping to move its Framework one step closer to Agreement on Reciprocal Trade (ART) status. Meanwhile, Secretary Rubio is scheduled to travel to India in May.
- Indonesia: The U.S. and Indonesia formally established a Major Defense Cooperation Partnership last week during a Pentagon meeting between Secretary of War Hegseth and Indonesian Defense Minister Sjafrie Sjamsoeddin. The agreement rests on military modernization, training, and operational cooperation. Media reports further indicate that Jakarta has granted blanket overflight access for American military aircraft, allowing greater U.S. influence over the Strait of Malacca—opening a new line of friction with China.
- Japan: Secretary Bessent met last week with Japanese Finance Minister Satsuki Katayama to discuss investment screening. The U.S./Japan ART shows few signs of stress despite the new 301 investigations.
- Morocco: The U.S. and Morocco signed a new 10-year defense cooperation roadmap, expanding collaboration across military operations, defense industries, and cybersecurity. The agreement has significant repercussions for the Strait of Gibraltar, which handles roughly 20 percent of global maritime traffic. As Morocco controls the Strait’s southern shore, the U.S. agreement expands American global shipping influence. Combined with the Indonesian agreement and previous Panama Canal decision, the moves are evidence of an aggressive U.S. strategy to counter Chinese control of critical supply chains by acquiring influence over global shipping channel infrastructure.
- United Kingdom: Signaling his simmering tension with Prime Minister Keir Starmer, President Trump told Sky News last week that the UK ART was a “better” deal than he had to make and that “it can always be changed.” The House of Commons’ Business and Trade Committee separately launched an inquiry into the U.S.-U.K. ART. Meanwhile, Secretary Bessent met last week with Chancellor of the Exchequer Rachel Reeves to discuss critical minerals.
OUTLOOK / ANALYSIS
The ceasefire has not produced a deal, but it remains intact. While issues like war damages and sanctions relief are largely solvable, the push-pull between Iranian diplomats and the IRGC over the Strait and nuclear concessions are proving intractable. The U.S. will continue to assert its blockade and is poised to resume military operations if the diplomatic view does not win out soon inside Iran—its forceful interdiction and seizure of an Iranian vessel proving foreshadowing the case just yesterday.
The market’s late-week rally and oil’s retreat reflect an investor preference to look through the negotiation’s gaps and begin pricing an eventual deal. If the ceasefire expires April 22 and strikes resume, that pricing reverses in a session (already previewed with this morning’s pullback).
The Lebanon fault line has been the first substantive win of the war. Hezbollah, which holds the military cards in Lebanon, has pledged non-compliance so the victory remains fragile. The dueling operational strategies of the U.S. and Iran (naval blockade vs. Hormuz closure) is the key variable running against the April 22 clock. Hormuz has already been priced in with oil reaching an equilibrium of just under $100/barrel. The U.S. naval blockade and troop buildup, however, are additive. This provides the U.S. delegation with maximum pressure economics heading into tomorrow’s scheduled talks, should they proceed.
The domestic institutional stress is running on its own timeline. The Powell firing threat and Bessent’s Fed critique arrived with Warsh facing the Senate Banking Committee this week. Over the next 30 days, massive economic news and indicators will compete: the war’s cost will be further crystallized with the Administration’s request for supplemental appropriations, hardened war-driven inflationary data will continue to roll out, the Fed will hold its next FOMC meeting, and a Fed Chair succession timeline will become more visible—all bookended by the President’s trip to Beijing in mid-May.
The weekend’s deterioration—Hormuz re-closed, IRGC vessels firing on tankers, Situation Room convened, and forceful interdiction—means the note closes with the ceasefire extension itself uncertain. The market priced a deal on Friday. The IRGC acted against it on Saturday. The U.S. doubled-down on Sunday. Managing the gap between those facts is the week’s most important variable for both the markets and the war.
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